Defining “Knowledge” to Include What Someone Should Have Known

Starting at 13.364, MSCD considers the elements that go into a definition of the defined term Knowledge.

One element that discussion doesn’t include is the possibility of Knowledge being defined to include information that the person in question should have known. That’s knows as “constructive knowledge,” and it features in the following definitions exhumed from the potter’s field EDGAR.

“Knowledge” means, with respect to an individual, such individual actually knows or should have known of the particular fact, matter, circumstance or other item.

“Knowledge” means the actual or constructive (knew or should have known given his or her position within the Group) knowledge of the relevant Person, which in the case of the Company or any of its Subsidiaries, means the Knowledge of Senior Management;

Knowledge” means, with respect to the Company, the actual knowledge of Michael Davidovich or Steve Slavutskiy and what either of them should have known in his Ordinary Course of Business.

“Knowledge” means, (i) with respect to an individual, the actual knowledge of such individual and what such individual should have known serving in the capacity in which such individual serves following reasonable inquiry; and (ii) with respect to a Person other than an individual, the actual knowledge of any individual who is then serving as a member, manager, or officer (or similar executive) of such Person and what any such individual should have known serving in such position following reasonable inquiry;

“Knowledge of the Company” and “Company’s Knowledge” means the actual knowledge of Karl Leaverton, Dave Taylor, Mike Newhouse or Jon Labonite and what any such individual should have known after a reasonable investigation.

“Knowledge” means, (a) with respect to an individual, the actual knowledge of such individual and what such individual should have known after a reasonable investigation; and (b) with respect to a Person other than an individual, the actual knowledge of J. Stephen Cornwell, Richard D. Perrin, David V. Pesce, Christopher J. Raymond, Nicholas M. Ilacqua and any individual who is serving as a director or officer of such Person and what any such individual should have known after a reasonable investigation.

The last three definitions refer to what the person should have known after reasonable investigation/inquiry; the first three do not. I’m not sure that makes a difference. Presumably, should have known refers to what a reasonable person would have known in the circumstances. It’s unlikely that a reasonable person would have been satisfied with sticking their head in the sand and not conducting a reasonable investigation. It follows that omission of any mention of reasonable investigation should be irrelevant.

But one might as well be explicit. That being the case, I don’t think the last three definitions are clear as to the role of investigation. What if there was no investigation? I’d refer to what that person should have known, including what that person would have found out in an investigation, regardless of whether an investigation was conducted, if the circumstances were such that a reasonable person would have conducted an investigation.

Instead of should have known, you could use the phrase constructive knowledge in the definition:

“Knowledge” means, with respect to a Party, the actual or constructive knowledge of such Party, after due inquiry. When used with respect to Seller, Knowledge shall include only the Knowledge of LaPlante and Wirth.

But that’s a bad idea: the less jargon, the better.

I’d be interested to know how broadly constructive knowledge is used in the market. Perhaps that’s something the ABA Deal Points Studies have looked into. (I haven’t checked.) Having to show actual knowledge is a demanding standard. Just having to show that someone should have known would seem as relaxed as an actual-knowledge standard is demanding.

[Update: @AMK351 tells me, in this tweet, that according to the 2014 ABA Deal Points Study, three-quarters of the contracts in the study sample used a constructive-knowledge standard.]

What’s your experience? Do you know of any relevant commentary?

 

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.